Market structures: competitive and non-competitive equilibria and efficiency properties. - Question Bank

1. Which characteristic is LEAST likely to be found in a monopoly?
A) High barriers to entry
B) Price discrimination
C) Downward-sloping demand curve
D) Significant non-price competition
2. In the context of efficiency, a market is considered perfectly efficient if:
A) Firms earn positive economic profits.
B) Price equals Marginal Cost and firms produce at minimum Average Total Cost.
C) Price is greater than Marginal Cost.
D) There are few dominant firms in the market.
3. Which market structure is characterized by fierce price competition and potentially zero economic profits in the long run, similar to perfect competition, but with product differentiation?
A) Oligopoly
B) Monopoly
C) Monopolistic Competition
D) Perfect Competition
4. The existence of significant economies of scale can lead to:
A) Perfect competition
B) Monopolistic competition
C) Oligopoly or monopoly (market structures with fewer firms)
D) Monopsony
5. Consider a situation where P > MC for a firm. This indicates:
A) The firm is operating in a perfectly competitive market.
B) The firm has market power and is potentially allocatively inefficient.
C) The firm is producing at its minimum average total cost.
D) The firm is maximizing its profit by setting MR=MC.
6. A firm in monopolistic competition earns short-run economic profits. What is likely to happen in the long run?
A) Firms will exit the market.
B) New firms will enter the market, reducing the profits of existing firms.
C) The market will become a monopoly.
D) Prices will fall to the level of marginal cost.
7. Which condition describes productive efficiency in the context of market structures?
A) Marginal Cost = Average Total Cost
B) Price = Marginal Cost
C) Marginal Revenue = Marginal Cost
D) Price = Average Total Cost
8. Which condition describes allocative efficiency in the context of market structures?
A) Marginal Cost = Average Total Cost
B) Marginal Revenue = Marginal Cost
C) Price = Marginal Cost
D) Price = Average Total Cost
9. The 'kink' in the kinked demand curve model occurs at the current market price because:
A) Competitors will match price increases but not price decreases.
B) Competitors will match price decreases but not price increases.
C) Competitors will always match any price change.
D) Competitors will ignore any price changes.
10. Advertising in monopolistically competitive markets can be viewed as:
A) A pure waste of resources.
B) A signal of quality and a means of informing consumers.
C) Always leading to increased prices without benefit.
D) A characteristic solely of oligopolistic markets.
11. In which market structure is deadweight loss typically the largest?
A) Perfect Competition
B) Monopolistic Competition
C) Oligopoly
D) Monopoly
12. The concept of 'deadweight loss' in economics refers to:
A) The profit earned by a firm.
B) The reduction in total surplus (consumer surplus + producer surplus) resulting from market distortions like monopoly pricing.
C) The cost of advertising.
D) The amount of government subsidy.
13. A monopsonist in the labor market will typically hire:
A) More workers than a competitive market and pay a higher wage.
B) Fewer workers than a competitive market and pay a lower wage.
C) The same number of workers as a competitive market but pay a lower wage.
D) More workers than a competitive market but pay a lower wage.
14. Which market structure is characterized by a single buyer?
A) Monopoly
B) Oligopoly
C) Monopsony
D) Perfect Competition
15. The outcome of the Bertrand model of competition is that firms competing on price will:
A) Set prices equal to the monopoly price.
B) Set prices equal to marginal cost, similar to perfect competition.
C) Set prices slightly above marginal cost.
D) Engage in price wars until one firm exits.
16. Compared to the Cournot equilibrium, the Stackelberg equilibrium generally results in:
A) Higher total output and lower prices
B) Lower total output and higher prices
C) The same total output and prices
D) Higher profits for the follower firm
17. The Stackelberg model is a sequential game where:
A) Firms choose prices first, then output.
B) One firm (the leader) chooses its output first, and the other firm (the follower) chooses its output in response.
C) Firms choose their output levels simultaneously.
D) Firms collude to set a single monopoly price.
18. In a Cournot duopoly model, firms compete by choosing:
A) Price simultaneously
B) Output levels simultaneously
C) Output levels sequentially
D) Price sequentially
19. Government regulation of natural monopolies often aims to achieve:
A) Higher prices and lower output
B) Allocative efficiency (P=MC), even if it means losses for the firm
C) Productive efficiency (minimum ATC)
D) A balance between efficiency and firm viability
20. A natural monopoly arises when:
A) A single firm controls all the raw materials.
B) A single firm owns a crucial patent.
C) A single firm can produce the entire market output at a lower cost than two or more firms could.
D) A government grants exclusive rights to a firm.
21. Which of the following best describes the 'efficiency properties' of a market structure?
A) The number of firms and their market share.
B) The ability of firms to influence prices and the relationship between price and marginal cost.
C) The level of advertising and product differentiation.
D) The ease of entry and exit for new firms.
22. In which market structure would the Lerner Index be closest to zero?
A) Monopoly
B) Oligopoly
C) Monopolistic Competition
D) Perfect Competition
23. The Lerner Index is a measure of a firm's market power, calculated as (P - MC) / P. A higher Lerner Index indicates:
A) Greater competition
B) Less market power
C) Greater market power
D) Allocative efficiency
24. Which market structure is most likely to engage in significant non-price competition like advertising and branding?
A) Perfect Competition
B) Monopoly
C) Oligopoly
D) Monopolistic Competition
25. Monopolistic competition is often criticized for 'excess capacity'. This refers to the fact that firms produce:
A) Less than the output at which ATC is minimized.
B) More than the output at which ATC is minimized.
C) At the output where ATC is minimized.
D) At the output where P=MC.
26. A monopoly is typically considered allocatively inefficient because it produces a quantity where:
A) Price is less than Marginal Cost.
B) Price equals Marginal Cost.
C) Price is greater than Marginal Cost.
D) Marginal Revenue equals Average Total Cost.
27. In a perfectly competitive market, firms achieve productive efficiency in the long run because:
A) They face downward-sloping demand curves.
B) Barriers to entry prevent firms from reaching optimal scale.
C) Free entry and exit drive firms to produce at the minimum of their average total cost curves.
D) They engage in extensive advertising.
28. Productive efficiency occurs when:
A) Firms produce at the lowest possible average total cost.
B) Price equals Marginal Cost.
C) Marginal Revenue equals Marginal Cost.
D) Firms earn economic profits.
29. Allocative efficiency occurs when:
A) Price equals Marginal Cost (P = MC)
B) Marginal Revenue equals Marginal Cost (MR = MC)
C) Total Revenue equals Total Cost (TR = TC)
D) Average Total Cost is minimized
30. Efficiency in economics is often measured by:
A) The number of firms in the market
B) The level of advertising expenditure
C) The degree to which resources are allocated to satisfy consumer wants (P=MC)
D) The amount of economic profit earned by firms
31. Which market structure is associated with the highest degree of allocative inefficiency?
A) Perfect Competition
B) Monopoly
C) Oligopoly
D) Monopolistic Competition
32. A characteristic of monopolistic competition that distinguishes it from perfect competition is:
A) Firms are price takers.
B) Products are homogeneous.
C) Firms have some control over their prices due to product differentiation.
D) There are no barriers to entry or exit.
33. In monopolistic competition, in the long run, firms earn:
A) Positive economic profits
B) Zero economic profits (normal profits)
C) Negative economic profits (losses)
D) Supernormal profits
34. Product differentiation in monopolistic competition can be achieved through:
A) Price alone
B) Quality, design, branding, and advertising
C) Producing identical goods
D) Collusion among firms
35. Monopolistic competition is a market structure characterized by:
A) A single seller
B) Homogeneous products
C) Many firms selling differentiated products
D) Significant barriers to entry
36. The 'kinked demand curve' model is often used to explain price rigidity in which market structure?
A) Perfect Competition
B) Monopoly
C) Oligopoly
D) Monopolistic Competition
37. Cartels, like OPEC, are examples of oligopolies that attempt to act like a:
A) Perfectly competitive market
B) Monopolistically competitive market
C) Monopoly
D) Monopsony
38. A key feature of oligopolistic markets is the interdependence of firms, meaning:
A) Firms act independently of each other.
B) Each firm's decisions significantly affect the others, and vice versa.
C) Firms always cooperate through collusion.
D) Entry and exit are completely free.
39. Oligopoly is a market structure characterized by:
A) A single seller
B) Many sellers with differentiated products
C) A few dominant sellers
D) Many sellers with identical products
40. Which condition is necessary for a firm to successfully practice price discrimination?
A) The firm must be a price taker.
B) The demand for the product must be perfectly elastic.
C) The firm must be able to prevent resale of the product between different buyer groups.
D) All buyers must have identical price elasticities of demand.
41. Price discrimination is the practice of:
A) Charging all customers the same price.
B) Selling a product at a loss.
C) Selling the same product to different buyers at different prices, where the price difference is not justified by cost differences.
D) Colluding with competitors to set prices.
42. Monopolies can potentially lead to allocative inefficiency because:
A) Price is equal to Marginal Cost (P = MC).
B) Price is greater than Marginal Cost (P > MC).
C) Marginal Revenue equals Marginal Cost (MR = MC).
D) Average Total Cost is minimized.
43. What is the primary difference between a monopolist and a perfectly competitive firm regarding pricing power?
A) A monopolist is a price maker, while a perfectly competitive firm is a price taker.
B) A monopolist is a price taker, while a perfectly competitive firm is a price maker.
C) Both are price makers.
D) Both are price takers.
44. A monopolist faces a downward-sloping demand curve, which implies that:
A) It can sell any quantity at the prevailing market price.
B) It is a price taker.
C) It can influence the price by changing the quantity supplied.
D) Its marginal revenue is equal to the price.
45. A monopoly is a market structure with:
A) A few dominant firms
B) Many firms selling differentiated products
C) A single seller and no close substitutes
D) Many firms selling identical products
46. In the long run, under perfect competition, firms earn only normal profits. This means:
A) Economic profit is positive.
B) Total Revenue equals Total Variable Cost.
C) Economic profit is zero.
D) Marginal Revenue equals Average Total Cost.
47. What is the profit-maximizing condition for a firm in any market structure?
A) Marginal Revenue (MR) = Average Total Cost (ATC)
B) Marginal Revenue (MR) = Marginal Cost (MC)
C) Total Revenue (TR) = Total Cost (TC)
D) Average Revenue (AR) = Marginal Cost (MC)
48. In perfect competition, what is the relationship between the market price and the individual firm's demand curve?
A) The firm's demand curve is downward sloping, while the market demand curve is horizontal.
B) Both the firm's and the market demand curves are downward sloping.
C) The firm's demand curve is horizontal, while the market demand curve is downward sloping.
D) Both the firm's and the market demand curves are horizontal.
49. Which market structure is characterized by a large number of buyers and sellers, homogeneous products, and free entry and exit?
A) Monopoly
B) Oligopoly
C) Perfect Competition
D) Monopolistic Competition
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